Wednesday, February 25, 2009

Call on the Works and Finance Ministers for a Toll-free North-South Expressway by 2016 and to save taxpayers’ RM14 billion

I joined our MPs Tony Pua (PJ Utara), Teo Nie Ching (Serdang) and Lim Lip Eng (Segambut) at a press conference this morning to publicise our proposal:

“The DAP Ops RESTORE (Restructure Toll Rates & Equity) Team would like to congratulate the Works Minister for first having declassified most of the highway toll concession agreements, and followed up with the removal of two toll plazas at the New Pantai Expressway (NPE) and the Sungei Besi Highway in the past two weeks.

We call upon the Works Minister to declare the compensation promised to these concessionaires for the abolition of the toll, for if the compensation involved is equivalent to the toll that would have been collected, then the joy for Malaysians will be shortlived.

In addition and more importantly, DAP Ops RESTORE Team calls upon both the Works and Finance Ministers to make the entire North-South Highway and its related concessions such as the ELITE, Butterworth-Kulim (BKE) and the Second Link Highways under PLUS Expressways Berhad completely toll free by 2016.

Following our team's consultations to date with legal experts, investment bankers as well as the general public, we have developed a comprehensive, practicable and creative programme to return the highways to the people at the least possible cost, and shortest possible time without compromising the integrity of the financial markets.

Our proposal will:

1) Impose no further increase in North-South Highway toll rates.
For example, a return KL-Penang journey will remain at RM86.60 today instead of RM115.30 in 2015 and RM168.80 by 2030.

2) Create RM14 billion savings for Malaysians from 2009-2015
This will be the amount saved either (i) by Malaysians using the highway because of no further toll rate increases or (ii) in terms of compensation which would have to be paid by the Government to PLUS Expressways.

3) Continue to collect toll only until 2015

4) Incur no additional cost for the Malaysian Government or Malaysian tax-payers

Background information:

1) PLUS is listed on Bursa Malaysia at a price of RM2.88 per share and a market capitalisation of RM14.4 billion (24th February).

2) The Government of Malaysia, via Khazanah owns 65% of PLUS.

3) PLUS has outstanding net debt amounting to RM8.5 billion.

We call upon the Government to take the following actions:

1. The Government should make a General Offer (GO) to acquire all minority shareholders of PLUS with a generous 15% premium at RM3.30 per share, costing RM5.25 billion thus ensuring that minority shareholders are protected.

2. The cost of acquisition, added to the RM8.5 billion net debt of PLUS will amount to RM13.75 billion.

3. This cost will be funded by issuing Malaysian Government Securities (MGS) at 3% interest (or less), costing RM413 million per annum. Total repayment will amount to RM16.2 billion over 6 years.

4. At the same time, PLUS should generate at least RM20b in net positive cashflow the 6 years to 2015 without further toll rate hikes and assuming a conservative 3% pa traffic growth.

5. Therefore by 2015, the government can completely repay the MGS and still have RM3.8 billion excess which could be used to build a better public transportation system throughout the country.

Not only will the execution of the above proposal bring joy to all Malaysians with a toll-free North South Expressway, the exercise will fit perfectly with the upcoming “mini-Budget” by the Finance Minister:

  • RM14 billion saved by Malaysian consumers will reduce the cost of living for the average Malaysian in times of economic difficulties we face today.
  • RM14 billion saved will also redirect expenditure to other more productive sectors of our economy by increasing domestic consumer demand.
  • The reduced toll rates and its subsequent abolition will substantially reduce the cost of doing business in Malaysia, increase logistical efficiencies and ultimately make Malaysian companies more globally competitive.
  • Best of all, the plan will stimulate demand and make available substantial funds for public infrastructure development without the Government having to increase the precarious budget deficit further.
Hence, the DAP Ops RESTORE Team would like to reiterate our call to both the Finance and Works Minister to include the above proposal in the proposed mini-budget set to be announced by the Finance Minister on the 10th March for the benefit of the Government and all Malaysians.”

Keen readers will note the toll-free target is now earlier at 2016 instead of 2020. The main difference between this and the proposal we presented at the public forum is we now assume 3% pa traffic growth, compared to zero before.


Sans said...

This article has comments from the general public on your proposal to take over PLUS

Anonymous said...

This is a most interesting proposal. I was wondering if you could address some queries / comments that I have:

- How do you arrive at the RM20bn earnings by 2015 with 3% traffic growth given 2008 positive cash flow of RM1.73bn? My spreadsheet only gives me RM13.65bn. I don't think you can justify it with nebulous concepts like "operating efficiencies" either since these savings could have equally been gained under the present structure.

- In 2007 PLUS paid 56% of its profits, or RM700m, in dividends to its shareholders. This would mean the govt would have received about RM450mn in dividends from its shares via Khazanah. This represents more than 30% of PLUS's net operating cash flow for the year. This is revenue that would be lost to the government under your scheme, since all the earnings would have gone towards paying off the bonds. Therefore, I think you should have offset whatever your calculated earnings by a similar percentage to take into account this loss of revenue.

- With no toll after 2015, I presume the government would have to foot the bill for maintaining and upgrading the highway. Why have you not put this cost into your calculations?

Chi-Chang said...

Dear anonymous,

1) The RM20bn is net operating cash flow, not earnings. It is based on RM1.73bn operating cash flow for 2008 (estimated by annualising the operating cashflows for the nine months ended Sept 2008 as the full year results had not been available then) and then building in 3% pa traffic growth.
2) No offset needed here because our proposal also involves no further toll rate hikes and no further government compensation. Under the present scenario, tolls are scheduled to go up again in 2011, 2014, 2017, 2020 ...If the government asks PLUS to keep tolls flat, it would have to compensate PLUS - the additional compensation would be RM250m pa in 2011, shoots up to well over RM0.5bn by 2014 .....
3) We are illustrating the highway can be toll-fee. PLUS spends about RM200m pa on maintaining the highways - not really that expensive in the overall scheme of things - and a mere fraction of the RM2bn+ it collects in toll charges! Also, that amount is considered by some to be quite expensive - other highway operators spend far less, measured on a like-for-like cost per lane-kilometre basis. But I would support a proposal to collect a reasonable toll to cover maintenance - it would be just about 10% of what you pay currently! So a return KL-Penang trip would cost less than RM10, vs RM86.60 today.
And as an aside, do you know government is already paying a huge chunk of PLUS costs? The expansion programme to 3-lanes costing c. RM1bn was paid for by us taxpayers

Anonymous said...

How do you arrive at RM14 billion savings? What about inflation rate? Should it be imputed in the net cashflow?

Chi-Chang said...

To Anonymous (12 Mar),

RM14bn is the amount that the government would be paying PLUS in compensation between now and 2015.

All numbers in here are nominal.